Future ISP 2002
The Forum for the Independent ISP

If not T3, then what?

Sydney
22 November 2002

Every fifty years or so, there comes along an innovation that makes a profound difference to the way people live their everyday lives.

It’s not always apparent at the outset just how important or widespread the impacts of these new technologies are going to be.

Who could have predicted that the development of the steam engine would be the harbinger of an entirely new form of economic organization, and give rise to the Industrial Age?

Who would have thought that the automobile, and the refinement of its production represented by Henry Ford’s moving production line, would transform the organization of everything from education and health care to leisure and sport?

Undoubtedly, there were some bright people who could see that these were innovations that were going to be milestones in human history, even if they could not have predicted the exact form of the changes they would bring.

I believe that we are privileged to have been alive at the birth of a technological innovation that will transform society - the internet.

Why are people and businesses motivated to use the internet? What makes it so compelling?

It is colour and movement. It is useful and efficient. It is in the seemingly infinite flexibility of the medium, the way it is potentially all things to all people.

But perhaps the real measure of the internet’s importance lies in the fact that it goes to the core tool of human development - communication. It elevates communication to a level never before imagined and in so doing creates a platform for human endeavour and development that nothing that has gone before it can match.

It represents the technical core of converging digital technologies. Internet Protocol is the holy grail of communications. For these reasons the internet is central to the development of human society for the foreseeable future.

It is this central role that makes access to and use of the internet essential for nations concerned with social advancement underpinned by economic growth. Those nations with the edge in pervasive internet use will be best positioned for the future.

Labor understands this and this understanding informs our vision for Australia.

Labor’s vision is for Australia to be a leading contributor to social and technological advances around the world. We believe that it is necessary to plan well ahead to achieve this. That is why Labor is currently in the process of designing a plan to give Australia the edge in a global economy - in social policy, industry policy and economic policy.

This is the vision against which we judge the Coalition’s performance in Government. Whilst other countries took the time to articulate their vision for their country during the information technology revolution and created policies to make it happen, the Coalition set itself one task and one task only.

Privatising Telstra. This privatisation agenda has for seven years been all-encompassing. There was no real consideration of the information revolution that was taking place, or where the opportunities lay for Australia. To this day the array of ad-hoc programs and grant schemes are still driven by the need to create the pre-conditions to sell off more of Telstra.

With such a stunted political agenda it is not surprising the policy settings are a minefield for other communications providers.

So here we are, late 2002, about eight years since Netscape announced to the world the commercialisation of the internet, the dotcom boom has come and gone, and the big debate in Australia is still the privatisation of Telstra.

Now, sure, there are some token words and ad hoc programs devoted to issues raised by the information revolution - a little bit of digital divide over here, a dab of advanced networks over there, a sprinkling of competition policy on top - but nothing that tampers too much with the main game - privatising Telstra.

This is the environment in which Labor has considered communications policy. Labor’s activities are driven in part by our role as opposition, exposing the weaknesses and neglect of the Government’s myopic agenda. That is a necessary and important role in any democracy, albeit an essentially negative one.

But a parallel - if less often reported - campaign has been to provide a way forward, to express a vision, and to devise a plan for communications under a future Labor Government. A plan that is not pre-occupied, conflicted or compromised by the privatisation agenda.

So we do these two things at once.

Labor’s response to the privatisation of Telstra has been clear and consistent. We will not sell. It is not a question of whether the full sale is somehow inevitable. Rather, it is a question of whether or not the Government of the day chooses to make privatisation their agenda. The Coalition chooses to do this. Labor chooses not to. Simple. Hence the myth of part-public ownership being unsustainable is exposed as being a figment of the privatisation campaign. I have yet to hear Richard Alston reconcile his myth with overseas practice, such as the partly privatised Deutsch Telecom.

Under Labor, there will be no conflict in Cabinet between the Minister for Finance and the Minister for Communications. The need to protect Telstra’s revenues to optimise share value to boost the profits from a further sell down will no longer override the need to pacify justified anger in the community and ICT sector at Telstra’s bad behaviour in the market. I believe that this will enable Labor’s focus at Cabinet level to stay sharply on stimulating investment and creating a world class converged communications environment.

With ownership a benign issue, the real policy challenges comes to the fore. Policy solutions that drive innovation include: creating compelling content and applications, leveraging the opportunities presented by convergence, managing fair competition, control of Telstra’s monopoly, increasing internet connectivity, government-driven demand for broadband and of course, leadership. Once the Government perspective rises above privatisation as the end game, these seemingly intractable issues of today are transformed into elements of the policy toolkit that will shape the converged, digital environment.

Let me give you an insight into the perspective the Labor Party takes to all those issues.

I posed this question earlier: Why are people and businesses motivated to use the internet and what makes it so compelling? The answer is meaningful and appealing content, services and applications. I have watched with interest as digital content has achieved new heights in the public discourse recently. Unfortunately the context has been that apparently we’ll all be better off with 400 pay TV channels. Thank you, Ziggy.

The Government is fond of saying that bandwidth and content is a chicken or egg problem as an excuse for doing nothing about either. In fact content and broadband are part of an innovation cycle, each driving the other. That means this is an opportunity, not a problem because stimulation of either, or better yet both, accelerates this innovation cycle.

I also want to stress the importance of ‘always-on’ internet access. Always-on internet is a pre-cursor to the full exploration and exploitation of bandwidth-hungry content, services and applications. Always-on really changes the way people can and do use the internet. Starting with the removal of a layer of annoying dial-up procedures and theoretical greater reliability (unless it’s ADSL), through to the use of ASPs and the prospect of utilising computing power through the ‘grid’.

At the moment a huge percentage of content and applications on the internet are sourced from the US and elsewhere. This proportion should change as Australian government services, news, entertainment and commerce continue to develop, unless the content innovation cycle in the US continues to speed up faster than we accelerate in Australia. Policies are needed that can spur this development of the content/broadband innovation cycle.

Content policy under the Coalition has been contradictory. I acknowledge there have been some ad-hoc grants to pay lip service to the aspirations of a nascent, bleeding edge digital content industry.

However in contradiction to this token effort, the Coalition have put in place a Digital TV regime that has directly stifled the interactive digital content market. The Digital TV regime ensured that the commercial opportunities for interactive digital content through the digital spectrum were so small that the market determined they were non-existent. As a result there was no investment made and an opportunity to develop this part of Australia’s capability was lost.

Labor sees another policy tool as convergence itself. I believe that the convergence platform is the internet and that the market has already confirmed this. Whether or not you agree, it is important that regulations be technologically neutral to allow the process of convergence to occur unhindered. It is no makes sense, in fact it is downright harmful, to separate policies relating to pervasive computing from telecommunications, or pay TV from Voice over IP, or interactive e-government from digital television.

Convergence should create opportunities for ‘disruptive technologies’ to enter the market. Such technologies seek to displace the traditional pricing and service structures that are the stock trade of Telstra. Recognising convergence as a critical ‘change agent’ requires foresight by investors and governments alike. Labor believes that the Coalition has put its head in the sand and deliberately ignored opportunities to leverage convergence to improve competition, and in some cases, like Digital TV, worked specifically to close off these opportunities for disruptive technologies at the behest of the market incumbents.

It has also been disappointing to see how willing the proponents of communications solutions that would certainly qualify as disruptive, have been willing to match or sit marginally under the existing price points of existing services in that space. This shows a fundamental lack of confidence.

After convergence, competition policy is one of the most powerful policy tools available to the government to stimulate investment in communications where a residual monopoly exists. It is the tool that the Coalition chooses to rely on almost exclusively, yet one its policies prosecute only half-heartedly. There is a range of provisions in the Trade Practices Act, including Part XIB and XIC that set out rules designed to prevent anti-competitive behaviour and provide for access undertakings and exemptions to ‘declared’ services and infrastructure. These provisions could be stronger and more resilient to regulatory ‘gaming’.

The parliament is currently considering the Telecommunications Competition Bills and the Senate Committee that inquired into this Bill intends to report to parliament out of session later today, so I am unable because of parliamentary privilege to reflect on our position. Other than to say this Bill is a half-hearted response to the issues raised in the Productivity Commission Report on Competition in Telecommunications. One thing all parties agree on is the fact that as Telstra should be treated differently to other competitors to offset their monopoly power.

But perhaps the most concerning decision regarding competition recently is the granting of an 87B exemption from the third line forcing provisions to Telstra by the ACCC. This exemption is a condition of the content sharing deal between Foxtel and Optus and will enable Telstra to bundle fixed and mobile telephony and internet with Foxtel pay TV.

The industry has already expressed their apprehension that permission to bundle may help Telstra block any potential first mover advantage others may have in 3G by sheer marketing weight behind new, bundled deals.

However I won’t get side-tracked by the Telstra-centric view of competition policy promulgated by the Coalition. There are real competitors out there. Their role is crucial in providing opportunities for regional Australia in ways that Telstra just can’t. Telstra’s dismal level of investment and extensive use of pair gains ensures that their existing copper network will never provide the sort of ubiquitous, always-on broadband services necessary for the future- even in metropolitan areas.

These alternative carriers and carriage service providers come in many shapes and sizes. For example, there are several broadband infrastructure alternatives now well established in larger regional markets including Neighbourhood Cable, Transact and Saskatel.

There are also a number of regional telecommunications companies operating in regional markets. These companies have emerged as local responses to break Telstra’s monopoly grip. Predictably, however, Telstra have responded with arrogance and contempt. The following two examples of recent conduct illustrate this.

Southern Phone gave illuminating evidence at a recent Senate Inquiry into the state of the network. The Southern Phone Company is owned by the local councils of south-eastern New South Wales-24 of them are shareholders. Using a $4.8 million Networking the Nation grant, Southern Phone aims to reduce the costs of long-distance calls by about half, and plans to develop a broadband data network to serve regional centres.

Here is an extract from the transcript. I had just asked Management if, in their view, there really were no affordable or meaningful solutions [for broadband in the region] offered by Telstra?

Mr Herrick -I offered on three occasions. That was when I was project manager, before the board was in place, and when we had been offered the money [by NtN]. I said to Telstra Country Wide, “We've got this money. Our objectives are better telecommunications and cheaper phone calls. You can have the money. You're wonderful people. Our community cannot function without Telstra, and we recognise that, and councils in particular recognise that.” It would have been great, but they were not interested in taking up that offer. We tried.

CHAIR -What did they say? What was their reasoning?

Mr Herrick -[Telstra said] “We already have 96 per cent of the market. Have a go.”

This illustrates the contemptuous attitude by Telstra where they have a stranglehold on the market. But wait, there’s more. Just as communities get fed up with this kind of treatment, Telstra have played a new card.

This time in it is northern Victoria, where Telstra is now offering The Riverina Development Board telephone calls for as low as 9 cents. Apparently the deal is part of a Telstra ‘cash for councils’ strategy. GMTel, a regional telecommunications company, had offered discounts of up to 24% off existing Telstra bills to the local council, water utility, hospital and TAFE. But then Telstra swooped in and offered the wider regional board a deal that cuts prices further and provides a couple hundred grand for a community development fund and project officer.

GMTel’s CEO, Ross McPherson has asked the right questions and now the ACCC is looking at whether Telstra’s action constitutes predatory pricing, which is against the law. As McPherson said, Telstra has a different rate card in the bottom draw that they pull out when they need to crush a potential competitor.

This manoeuvring demonstrates that Telstra needs to be controlled. It is a sad fact that the size of Telstra’s legal and regulatory department means that they have far more resources that the Federal Government could even dream of. So what hope have competitors got?

Controlling Telstra will therefore be a part of a far broader strategy designed to unleash the potential of the ICT revolution to prepare Australia to excel in a globalised world. It is really up to Telstra how constructive their contribution is to be.

Labor plans to deal with Telstra in a way to ensure it can no longer suck the oxygen out of the market. This was the thinking in the policy discussion paper Labor released earlier this year titled Reforming Telstra. This paper highlighted the appalling state of affairs with Telstra’s regulatory gaming and declining levels of service. It also canvassed several options for controlling anti-competitive behaviour including structural separation of business units within the company.

The concept of structurally separating the business units of Telstra is not new. The fact that it is still widely discussed and gaining popularity is testimony to the continued exploitation by Telstra of their residual monopoly. The theory is that if Telstra were two separate companies, one infrastructure/wholesale and the other retail telephony/internet/mobile, there would be a far less opportunity for exploitation of vertical integration, use of market share to dominate and to engage in regulatory gaming.

Labor is still contemplating the possible models for improving the transparency of Telstra. One end of the scale is structural separation, with the government maintaining the current proportion of ownership in the two entities. The other end of the scale is improving transparency through the Trade Practices Act using the Record Keeping Rules provisions. In between there is a virtual separation model that is more like ‘ring-fencing’ the defined business units through mandating formal accounting separation.

Another issue worth mentioning while talking about structural separation is forcing Telstra to divest itself of assets. In the context of the Pay TV announcement this week, Professor Fels said: “The ACCC continues to be concerned about the level of vertical integration in the pay TV industry, particularly given the position of Telstra as a major shareholder in Foxtel.” He went on to say “This leaves the ACCC with concerns about the appropriate regulatory regime in both pay TV and telephony markets.”

This has led to speculation in the media that the ACCC may suggest that Telstra quit or sell down its share in Foxtel. The ACCC has said it will be providing advice to the Minister on these issues, leaving the ball in the Minister’s court where once again the consideration of privatisation will no doubt dictate any decision.

Labor has already committed to closing the digital divide, but we need to go further than this. I believe that a vision of universal broadband access is appropriate. Achieving this will help give Australia the edge we need in a globalised world. This means Labor will be working towards always-on, broadband for all its citizens. When expressed in these terms it is easy to see why many pundits describe the future of internet connectivity as being analogous to a utility.

In the same way that power, water, sewerage and a voice telephony service were considered basic services last century, always-on broadband will replace voice telephony through a digital gateway in the home or workplace that will provide not just internet as we know it, but a diverse array of passive and interactive digital services.

Labor understands that to realise the benefits of such advances for Australian society, the transition needs to be as efficient and equitable as possible. Because of Australia’s geography and uneven population densities, this will require strategic intervention. Whereas the Coalition looks at the findings of Besley and now Estens to define the mandate for privatisation, Labor observes that even these compromised inquiries highlight how unequal the transition has been so far.

This transition requires leadership to steer a path through a period of uncertainty and change. Just ask someone you know who has never used the internet how they feel. To be on the wrong side of the digital divide is alienating. Labor is sensitive to the experience of citizens who feel alienated under the Coalition. Our connectivity strategies will focus on those most in need, who will obviously benefit most from the empowerment the internet brings.

The government must lead by example as a provider of e-government services and as a purchaser of information and communication technologies. Governments at the local, state and federal level will be key players in increasing internet use through their investments in quality, practical e-government services. Providing of course such services are genuinely citizen focused and are compelling enough for people to make the transition to online.

There is also proven potential in using aggregated government and community demand to build the business case for alternative broadband networks. This is particularly important for communities outside the cities where Telstra have complete control of the ‘pipe’ into town as well as the local loop. Labor governments around the country have taken the initiative.

Reef.Net is a Queensland Government initiative where they contracted Optus to provide an alternative ‘pipe’ up the east coast to far North Queensland. The key is that once the infrastructure is there, not only the government agencies benefit, the local community and bandwidth-hungry institutions get access to it at hopefully competitive prices.

In Victoria, the Bracks Labor Government’s Regional Connections strategy says that the Victorian Government’s communications spend will be strategically utilised to promote competitive wholesale and retail markets, and the Government’s communications purchasing panels will be opened to regional and community Telco’s.

This success is not limited to the east coast. South Australia is host to successful initiatives as are the remaining states I haven’t had time to mention as well. Thee existing and emerging companies are using this strategy with varying degrees of success. In some cases their survival will be dependent on the strength of competition laws.

In contrast to the Labor states, the Federal Government has bundled together their IT and telecommunications contracts into vertically integrated mega-contracts, of which Telstra have the lion’s share of the telecommunications. Multinational IT companies have the bulk of the IT work. It is worth noting that Telstra itself has the IT and telecommunications contract for Senator Alston’s own department, DoCITA and the ACCC.

I would now like to share some thoughts about broadening the debate beyond privatisation myopia.

Everyone has a role to play in determining the next necessary step in law making. Carrier, carriage service provider, ISP, reseller, content provider, software company, hardware supplier, systems integrator, code writer, internet user, consumer group and last, but not least, the industry association. Many lobby for changes with their own interests at heart, which is to be expected. Almost all represent their view as reflective of the common good. It is up to politicians to be astute enough to know the difference.

But some stakeholders have the capacity to step out in front of these individual agendas. Industry associations can and do step out in front of their respective membership interests from time to time. However I have observed that one of the particular strategies of the Coalition Government is to disarm dissenting voices. They did this with a vast range of community organisations following their election in 1996, from youth to women, when they declined to give what they described as ‘special interest groups’ funding they needed to survive.

With Telstra in full concurrence with the privatisation agenda, the Coalition didn’t need to silence organisations that were anti-privatisation, Telstra just took a position on the board. Organisations didn’t even get through the door of a Minister’s office unless they were pro-privatisation. This selective manipulation has had a devastating impact on the nature and substance of the communication debate. Given that this was the attitude of the Government during a period of rapid development of ICT there are many new organisations that have never known it to be any different.

I believe that this is part of the reason why the big picture policy questions relating to the ICT revolution are under-developed in the public debate. Many organised voices have been deliberately distracted and pre-occupied with the complexity of micro-managing individual policy tools like access regimes or internet content censorship. The multitude of which just means the privatisation debate dominates.

Again, the challenge for Labor in opposition has been to keep a watching brief on all this noise, while still staying true to a big picture vision for an Australia that leads the world in the practical application of converged digital communication.

I want to take this opportunity to call on communications industry organisations to resist manipulation.

In conclusion, I would like to turn to leadership. Labor understands how crucial strong leadership from the executive government is. This leadership needs to go beyond having a good idea. It requires facilitation of strong partnerships between business and government, and ensuring that the vision is shared among all stakeholders. It must be a collective goal.

I would also like to stress the importance of the ability of a government to administer government with the highest level of probity is essential.

The policy solutions that drive innovation cross many portfolios. Just to recap, they include: creating compelling content and applications, leveraging the opportunities presented by convergence, competition, control of Telstra’s monopoly, increasing internet connectivity, government-driven demand for broadband and of course, leadership.

Multi-portfolio co-ordination is always challenging. Those charged with implementing government policy - departments and agencies - are quite often silos. These silos have a culture of their own and it is only through strong, inspired leadership that things change and progress is made towards achieving a vision.

The Coalition has spent the last seven years diminishing us as a nation. It has perpetuated a grand deceit. It has convinced us that mediocrity is an ambition. This must be rejected.

Labor understands that mediocrity spells irrelevancy and because we live in a globalised world, irrelevancy means failure.

Labor believes that Australia can and should lead the world in communications excellence.